Bank of Canada keeps overnight interest rate target at 1.75 per cent

The Bank of Canada is maintaining its key interest rate as it warns that ongoing “trade tensions” have coloured the global economic outlook.

Wednesday’s decision kept the overnight rate target at 1.75 per cent for the sixth consecutive meeting of the bank’s governing council and comes after record-breaking job numbers in the spring signalled Canada had recovered from an early year economic slump.

While the bank is warning against the impact of global trade skirmishes, it’s also striking an optimistic tone about the Canadian economy.

“Following temporary weakness in late 2018 and early 2019, Canada’s economy is returning to growth around potential, as expected,” reads a statement from the bank, which credited “stronger than predicted” growth in the spring partly to the “reversal of weather-related slowdowns…and a surge in oil production.”

Consumer spending, the bank says, is “being supported by a healthy labour market,” while the housing market, at least at the national level, is “stabilizing,” although it cautions that “adjustments [are] underway” in some areas.

The bank is now projecting real GDP growth to average 1.3 per cent in 2019 before rising to two per cent in 2020 and 2021. It cites a “material decline in longer-term mortgage rates” for spurring housing activity and notes that exports rebounded over the spring and will grow “moderately as foreign demand continues to expand.”

But the bank cautions that “ongoing trade conflicts and competitiveness challenges are dampening the outlook for trade and investment.”

Statistics Canada reported last week that the Canadian economy shed 2,200 jobs in June and the unemployment rate rose slightly to 5.5 per cent, though this is still a historically low level.

In April, Canada posted the largest one-month employment gain on record, according to numbers from the agency, adding 107,000 net jobs.

Fears of global trade disruptions have intensified in recent months as the Trump administration in the U.S. has raised tariffs on Chinese goods in an effort to pressure the Asian power to agree to a new trade pact. China has responded by slapping tariffs on American products.

Separately, China has halted imports of some Canadian agriculture goods like canola and pork in recent weeks in what many attribute to the diplomatic spat between the two countries sparked by the arrest of Huawei chief financial officer Meng Wanzhou in Vancouver at the behest of the U.S.